Exports account for a significant portion of sales for many U.S. based companies. The ability to compete successfully in the global marketplace has become a necessity. So has the need for the credit function to think, act and manage credit risk globally. The procedure for making an export credit decision includes some of the same steps as are used in making domestic open account credit decisions.
In addition to the traditional five Cs of credit analysis, other elements of export credit decision-making include: Country risk; Foreign exchange risk; and the Risk of being misunderstood. Here is an example: If a foreign country refuses to allow companies located there to make payments in US dollars to foreign suppliers, you will likely not receive timely payment irrespective of how creditworthy your foreign customer may be.
Each of these three export related risks can seriously affect when or if you receive payment. Understanding and managing these three risks is at least as important as evaluating the five Cs.
By Michael C. Dennis. Michael is a consultant and the author of the Encyclopedia of Credit, a free, fast online resource: www.encyclopediaofcredit.com